NEW YORK (AP) — The trial between one of the world's largest accounting firms and MF Global began Tuesday with lawyers from each side pointing fingers over who is to blame for the collapse of Wall Street brokerage.
The legal remnants of MF Global, which was run by former New Jersey Governor Jon Corzine, are suing PwC, also known as PricewaterhouseCoopers, claiming that negligence and accounting malpractice was a cause for MF Global's collapse.
PwC denies those allegations, saying the blame lies solely with Corzine and the rest of the firm's management. MF Global is seeking at least $3 billion in damages.
What was originally a highly technical case newsworthy mostly because it involved the former governor of New Jersey has garnered additional interest after the negative publicity PwC received regarding its handling of the Oscars. U.S. District Court Judge Victor Marrero had to dismiss several potential jurors on Monday after those persons claimed to have "strong feelings or opinions" about PwC.
Dan Fetterman, one of the lawyers representing the MF Global side, argued that PwC's accounting mistakes caused a "crisis of confidence" among investors, creditors and the public in the firm.
MF Global argues that PwC made two mistakes as MF Global's accounting firm. MF Global argues that PwC, the firm's auditor at the time, signed off on a decision to hold roughly $6.3 billion in assets off MF Global's balance sheet.
These assets were tied to European government bonds, which turned toxic in late 2011 when the European debt crisis flared up, and the nondisclosure of these assets on MF Global's balance sheet caught Wall Street off guard. MF Global filed for bankruptcy a week later.
Second, MF Global's lawyers claim that PwC's auditors made mistakes regarding roughly $72 million in what are known as tax-deferred assets, which further complicated MF Global's already precarious financial position.
"PwC failed at its basic job," Fetterman said.
Lawyers representing PwC argued to the jury that the evidence shows that MF Global was singularly responsible for its own demise. Whether those assets were on or off the balance sheet did not matter in the end, they said.
"MF Global's bankruptcy was caused by its own risky trading strategy, its unprofitable business and awful market conditions, not by accounting or auditing," said James Cusick with the law firm King & Spalding.
Corzine, who has been off the public's radar since MF Global's collapse, was not in court on Monday or Tuesday but is expected to testify in the coming weeks. The trial is being heard in the U.S. District Court for the Southern District of New York and is expected to last about five weeks.